Network marketing, also known as Multi-level marketing or MLM, is a business model that combines direct retail marketing with a salesforce of independent contractors. Network marketing is an alternate channel for a manufacturer or retailer to advertise, sell and deliver its products to market. Other channels may include retail storefronts, catalog shopping, and door-to-door sales.
Network marketing businesses usually function by enrolling unsalaried salespeople, also known in the business as Independent Distributors, Independent Business Owners, Sales Consultants, etc., (hereinafter “Independent Distributor”) to sell products and earn additional sales commissions based on the sales of people recruited into their downline, an organization, that includes direct recruits, recruits' recruits and so on such that there may be multiple levels of people receiving commissions from one person's sales.
Network marketing offers several advantages over the other retail channels such as low advertising overhead. Unlike a typical retail company, the network marketing company doesn't have to spend large amounts of money to obtain customers. Instead, it pays Independent Distributors to expose and promote the product out into the marketplace. In addition, the company only has to pay the Independent Distributor a percentage commission on products actually sold.
In a traditional network marketing organization Independent Distributors are rewarded for the sales they create, not only directly, but indirectly as well. Independent Distributors earn profit from any retail sales they make, plus they also may earn a bonus or override on the sales made by people they recruited into the company, and the people they recruited, and the people they recruited, etc. By getting a small percentage from many people, their income can grow to a very large number.
Over the years, companies have developed a variety of network marketing compensation plans. Some of these include breakaway, unilevel, matrix, and binary.
The traditional “matrix” is a plan with a structure that has a fixed “shape” that determines the size of the organization, or personal enroller genealogy, the Independent Distributor can be paid on. For example, if a company uses a 4×4 matrix, the Independent Distributor can have no more than 4 people on their “frontline”, and can be paid no more than 4 levels deep. If they already have 4 people on their frontline, any future people they enroll will have to be “placed” somewhere below those 4 frontline people. This is called “spillover”.
Matrix plans limit the width of each level in an Independent Distributor's group, forcing successful recruiters to position their recruits under other people who did not recruit them (“spillover”). Spillover therefore can be viewed as either a curse or a blessing, with proponents saying it's a great way to cause people to help their downlines since recruits will automatically be placed below their downline distributors. Spillover also tends to keep people active, because they don't want to lose out on the recruits spilling over from their upline. Others argue that spillover rewards weak and non-performing Independent Distributors, because if an Independent Distributor is producing, they will already have people below them, causing new recruits to likely be placed in the “holes” under non-producers. In a traditional fixed matrix plan, an Independent Distributor remains permanently in the original position into which they were recruited and so has little incentive to recruit additional participants once their matrix downline is full.
These plans typically have some provisions for paying commissions and incomes on the volume of sales made during a certain time period. There is typically a minimum “group volume” requirement for an Independent Distributor to qualify for these commissions. The number of levels of volume in the matrix the Independent Distributor is paid on and the percentages they receive are dependent on the company and the position they have reached. In a conventional matrix marketing plan the sales volume made by an Independent Distributor only benefits their direct personal and/or placement upline.
Accordingly, there is a need in the industry for improved methods and systems for implementing and managing a retail customer referral compensation program with a performance-driven floating matrix plan wherein Independent Distributors may periodically move up and be repositioned in the organizational structure to qualify for commissions and bonuses that they would not qualify for in a traditional fixed matrix plan.